What Happens If You’re Late on a Car Payment?

When a car payment is missed, it sets in motion a series of events that can escalate from minor financial penalties to severe long-term consequences, including vehicle loss and substantial financial liabilities.

Immediate Effects of a Missed Payment

The initial consequence of a missed car payment is often the assessment of late fees. These charges can be a flat amount, such as $25 to $50, or a percentage of the overdue payment, often ranging from 1.5% to 15% of the monthly installment, applied shortly after the due date.

A payment reported as 30 days or more past due can significantly affect a borrower’s credit score. This negative entry remains on credit reports for seven years from the date of the first missed payment, impacting future borrowing opportunities. Lenders typically initiate contact with the borrower within days of a missed payment, often through automated calls, emails, or letters, serving as a reminder that the payment is overdue.

Lender Communications and Grace Periods

Many auto loan agreements include a grace period, which is a short window of time after the official due date during which a payment can still be made without incurring late fees or being reported as delinquent to credit bureaus. These grace periods commonly range from 10 to 15 days, providing a brief buffer for borrowers. It is important to note that not all loans offer a grace period, and the exact terms are outlined in the specific loan contract.

As the delinquency continues, lender communications become more frequent and urgent. Borrowers may receive formal notices of default or intent to repossess, depending on the terms of their loan agreement and state regulations. Some loan contracts also contain an acceleration clause, which allows the lender to demand the entire remaining loan balance be paid immediately if payments are not made as agreed.

Borrowers should proactively contact their lender during this period to discuss potential solutions. Options such as payment deferment, temporary hardship plans, or loan modifications might be available to help bring the account current. Engaging with the lender demonstrates a willingness to resolve the situation and can sometimes prevent further escalation of the delinquency.

The Repossession Process

Repossession can occur once a borrower is in default on their auto loan, though the exact timing varies. While a lender can legally repossess a vehicle after even one missed payment, they often wait until the account is 30 to 90 days past due before initiating the process. The specific conditions that trigger repossession are detailed in the loan agreement and are also subject to state laws.

The physical act of repossession is typically carried out by a repossession agent. In many jurisdictions, lenders are not required to provide advance notice before repossessing a vehicle, and the action can occur without warning. However, agents are legally prohibited from “breaching the peace,” which means they cannot use physical force, threats, or break into locked garages to seize the vehicle.

Borrowers have certain rights during and after repossession. They are generally entitled to retrieve personal belongings left inside the vehicle. Some states also offer a “right to reinstate” the loan, allowing the borrower to recover the vehicle by paying the past-due amount along with any repossession expenses. Following the repossession, the lender must usually send a notice of intent to sell the vehicle, informing the borrower of the impending sale and their remaining obligations.

Financial Aftermath of Repossession

After a vehicle is repossessed, the lender typically sells it to recover a portion of the outstanding loan balance. These sales often occur at public auctions, where vehicles commonly sell for significantly less than their market value or the amount still owed on the loan. The goal of the sale is to mitigate the lender’s losses, not necessarily to achieve the highest possible price.

A deficiency balance arises when the sale price of the repossessed vehicle is insufficient to cover the total amount owed on the loan. This balance includes the remaining principal, accrued interest, and various repossession-related costs such as towing, storage, and auction fees. The borrower remains legally responsible for repaying this deficiency balance.

Lenders may pursue legal action to collect the deficiency balance if the borrower does not pay it. This could result in a court judgment against the borrower, potentially leading to wage garnishment or bank account levies, depending on state regulations. A repossession also inflicts severe, long-lasting damage to a borrower’s credit report, impacting their ability to secure future loans or credit for up to seven years.